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The Austrian current account deficit: Driven by twin deficits or by intertemporal expenditure allocation?

  • Sylvia Kaufmann

    (University of Vienna, Department of Economics, Hohenstaufengasse 9, A-1010 Vienna, and Oesterreichische Nationalbank, Economic Analysis Division, Otto Wagner Platz 3, 1090 Vienna)

  • Georg Winckler

    (University of Vienna, Department of Economics, Hohenstaufengasse 9, A-1010 Vienna)

  • Johann Scharler

    (University of California - Davis, Department of Economics, One Shields Ave., Davis, CA 95616-8578)

The evidence presented in the paper rejects the twin deficit hypothesis for the Austrian current account balance during the last two decades. The results are based on an estimate of a vector error correction model including quarterly data for the current account balance and potentially relevant variables driving its dynamics. We compute the variance decomposition of the current account's forecast error and its generalized impulse responses to shocks in the innovations of the system. The results in favor of intertemporal expenditure reallocation cannot be reproduced within a second analysis including the current account and a measure of net output, however. The estimated implicit current account balance, interpreted as the discounted expected change in future net output, does not follow the actual behaviour of the current account.

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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 27 (2002)
Issue (Month): 3 ()
Pages: 529-542

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Handle: RePEc:spr:empeco:v:27:y:2002:i:3:p:529-542
Note: received: June 1999/Final version received: March 2001
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